The Australian share market closed the month of August flat, with the All-Ordinaries index closing at 8,316.7 points. The Australian dollar gained by 3.5% for the month, with 1 Australian Dollar currently buying 65.42 United States cents.
Global share market returns were once again mixed in July, with the United States Dow Jones Index gaining by 1.8%, the London FTSE gaining by 0.1%, the Japan Nikkei 225 falling by 1.2%, and the Hong Kong Hang Seng Index gaining by 3.7% for the month.
The Reserve Bank of Australia (RBA) board kept the Target Cash Rate on hold at 4.35% per annum at its August meeting, with markets now expecting the next RBA board move to be a cut in rates next year (if not earlier as global inflation continues to trend down as shown in the chart below).
Global share markets buoyed during the month with the United States Federal Reserve Chairman Jerome Powell declaring “the time has come” to start easing rates, which makes a cut in United States all but certain in September.
The Australian Dollar rallied on the back of the above announcement, however certainly in recent times the RBA rate policy has mirrored that of the United States – giving domestic borrowers hope that rate relief is coming in the near-term.
The key driver of investment markets in recent times has been inflation and interest rate expectations. Given the market movements in the past month, it does not appear that this relationship will be changing in the short-term. Consequently, with expectations of interest rates to come down, I expect continued support for share market investments in the short-term.
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This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation, and investment objectives.